The Securities and Exchange Board of India (SEBI) has alleged that foreign portfolio investor Kingdon Capital Management LLC and its associated entities colluded with Hindenburg to facilitate trading in Adani Enterprises futures in the Indian derivatives market and share profits.
According to SEBI’s investigation, Hindenburg took advantage of prior knowledge of non-public information to create short positions and colluded with Mark Kingdon and his entities in the scheme.
According to SEBI’s investigation, the scheme involved sharing draft reports, allowing Kingdon to open trading accounts, agreeing to share small profits, publishing reports pre-arranged at the time of FPOs and having no connection with the Indian securities market. This includes setting up an India fund to handle claims, classification for short sale profits and trading in Adani shares.
Contents
SEBI alleged that Kingdon entered into a legal agreement with Hindenburg Research LLC to share the draft report even before it was officially released on January 24, 2023.
SEBI has issued show cause notices to Hindenburg Research LLC and its sole proprietor Nathan Anderson and Mauritius-based entity Mark Kingdon for trading violations in shares of Adani Enterprises.
The market regulator alleged that Hindenburg and Andersen violated the SEBI Act, SEBI’s Prevention of Fraudulent and Unfair Trade Practices Regulations and SEBI’s Code of Conduct for Foreign Portfolio Investors.
FPI Kingdom also allegedly violated the SEBI Act, SEBI’s Prevention of Fraudulent and Unfair Trade Practices Regulations and SEBI’s Code of Conduct for Foreign Portfolio Investors.
NDTV has reviewed the show cause notice
According to the show-cause notice, a copy of which has been reviewed by NDTV Profit, Sebi alleged that short-selling activity was observed in Adani Enterprise futures before the release of the report and on January 24, 2023 and after the report on February 22. The stock fell 59 percent between 2023 and 2023. Adani Enterprises was preparing a follow-on public offering when the Hindenburg Report was released. Later, in the interest of the shareholders, the Adani group withdrew the FPO.
A SEBI investigation found that K-India Opportunities Fund – Class F started trading in Adani Enterprises shares before the release of the report and made a profit of US$22.25 million or ₹183.24 crore from all positions in February. The fund was traded on NSE only in shares of Adani Enterprises.
An offshore fund was created by Kotak Mahindra, Hindenburg said
Hindenburg has now alleged in its response that Kotak Mahindra Investments Ltd set up and oversaw an offshore fund structure used by Kingdon to make bets against Adani. The market regulator, in its show cause notice, said that Kotak entered into an investment advisory agreement between KMIL and Kingdon Capital on January 5, 2023, indicating a rush to set up a trading account. Kingdon Capital makes all trading decisions for FPIs.
Shares of Kotak Mahindra Bank fell over 2 percent on Tuesday following the reaction from the US shotseller. In fact, Hindenburg named Kotak Mahindra Bank in the statement issued in his explanation.
(Disclaimer: New Delhi Television is a subsidiary of AMG Media Networks Limited, an Adani group company.)